1. Chicago Board of Trade Market News
On Monday at noon EST USDA will publish the important Acreage and Grain stocks reports. The Acreage report will be most important for participants within the feed grain industry. There is room for a potential bullish surprise because a survey of market analysts is already expecting actual corn acreage to be above the initial planting intentions that was published in the March 31 Prospective Plantings report. (Reports are often considered bullish or bearish according to who they line up with average market expectations).
The March 31 Perspective Plantings reported that U.S. farmers intended to plant 91.691 million bushels. A survey of multiple market analysts averaged 91.787 million acres (ranging from 91 to 92.3 million acres) for estimates of actual U.S. corn planting. However, even a small increase in corn acreage seems unlikely when considering factors this spring such as price action and weather conditions.
USDA will also release its quarterly Grain stocks report on Monday. The range of analyst estimates for U.S. total corn stocks is between 3.046 and 4.050 billion bushels in storage. The simple average between the high and low of this range is 3.55 billion bushels. However, the 3.724 billion bushel average of the analysts estimates is above the simple average of the range, which also increases the probability of the corn stocks data being interperted as bullish.
Lastly, USDA will release their crop condition data at 4:00 P.M. EST. If the prior reports are supportive and there is any additional decline in the average condition of U.S. corn, then the outlook is for corn futures to work higher into pollination.
3. U.S. Weather/Crop Progress
Warm, humid and unsettled conditions will persist from the central and southern Plains to the Mid-Atlantic and Southeast Coast. Embedded within this large area of unsettled weather, the greatest potential for heavy rain will be over the Upper Midwest and northern Plains as well as the central and western Gulf Coast region. Showers are also expected across the Northwest — though the rain is expected to once again bypass primary Northwestern drought areas — and in the Northeast.
The NWS outlook for July 1-5 calls for wetter-than-normal conditions east of the Mississippi and from the Four Corners into the central Plains as well as southern Texas. Conversely, drier-than-normal weather is expected from the Northwest east to the northern Plains. Above-normal temperatures are anticipated across much of the nation, with cooler-than-normal conditions confined to the Upper Midwest, Texas and the coastal Pacific Northwest. Follow this link to view current U.S. and international weather patterns and the future outlook: Weather and Crop Bulletin
4. U.S. Export Statistics
Corn: Net sales of 321,400 MT for 2013/14 were up noticeably from the previous week, but down 22 percent from the prior four-week average. Increases were reported for Japan (142,000 MT, including 77,800 MT switched from unknown destinations and decreases of 12,500 MT), South Korea (127,100 MT), Vietnam (86,000 MT, including 90,000 MT switched from unknown destinations and decreases of 4,000 MT), Spain (72,000 MT, including 60,000 MT switched from unknown destinations), Egypt (68,000 MT) and the Netherlands (60,000 MT, switched from unknown destinations). Decreases were reported for unknown destinations (327,700 MT), China (60,000 MT) and Israel (1,100 MT). Net sales of 232,100 MT for 2014/15 were reported primarily for Mexico (138,600 MT), unknown destinations (65,600 MT) and Costa Rica (27,400 MT). Decreases were reported for the Philippines (200 MT). Exports of 1,154,500 MT were up 3 percent from the previous week and 2 percent from the prior four-week average. The primary destinations were Mexico (292,700 MT), Japan (224,600 MT), South Korea (135,500 MT), Israel (133,900 MT), Spain (132,000 MT), Vietnam (86,000 MT) and Costa Rica (60,800 MT).
Optional Origin Sales: For 2013/14, options were exercised to export 68,000 MT to South Korea from the United States. Outstanding optional origin sales total 55,000 MT, all South Korea.
Barley: Net sales reductions of 100 MT for 2014/1015 were reported for Japan. Exports of 1,300 MT were reported to Japan.
Sorghum: Net sales of 10,600 MT for 2013/14 resulted as increases for Japan (15,600 MT, including 9,500 MT switched from unknown destinations), were partially offset by decreases for unknown destinations (4,000 MT) and China (1,000 MT). Net sales of 50,000 MT for 2014/15 were reported for China. Exports of 69,900 MT were reported to China (60,400 MT) and Japan (9,500 MT).
6. Distillers Dried Grains with Solubles (DDGS)
There was divergence in DDGS prices for the U.S. domestic and international markets recently. Domestic DDGS prices all experienced further declines during the week ending June 27, while containerized rates to foreign markets stabilized and even showed small increases into the August/September time period. Such price action in grain markets is commonly synonymous with market adjustments.
One adjustment that merchandisers report is an increasing hesitancy to do business with Chinese end-users due to recent market dynamics. Growing interest in doing business with different buyers has resulted in DDGS being offered at lower values in relation to corn. For the preferred clients, a “new norm” seems to be evolving to price DDGS around 105 percent of the value of local corn, rather than the 120’s that had been previously seen. Considering some of the condensed nutritional values of DDGS, this is attractive pricing.
Two important USDA reports will be published on Monday. The contents of those reports are likely to influence whether DDGS buyers seek more favorable pricing this fall or decide to go ahead and book a larger share of their 2014/15 seasonal needs in the near-term.
Ethanol Comments: Ethanol production declined to an average daily rate of 938,000 barrels per day (bpd) for the week ending June 20. This was a modest 34,000 bpd decline but it seems sufficient to allow the differentials between the spot price of ethanol and co-products to improve in three of the four survey regions across the Corn Belt. Please see the following data.
Stabilization of production seems to have more influence on the spot market differential than does any building of total ethanol stocks. U.S. ethanol stocks increased this past week by 1.9 percent 18.2 million barrels. That is up 11.6 percent from the year ago level of 16.3 million barrels. Present ethanol stocks do not seem to be at levels that call for curtailment of production.
The differential between the cost of corn and the value of ethanol and DDGS at processing plants in different regions of the Corn-Belt are as follows for week ending June 27, 2014:
- Illinois differential is $2.96 per bushel in comparison to $3.16 the prior week and $2.20 a year ago.
- Iowa differential is $2.83 per bushel in comparison to $2.72 the prior week and $1.90 a year ago.
- Nebraska differential is $2.90 per bushel in comparison to $2.73 the prior week and $1.78 a year ago.
- South Dakota differential is $3.27 per bushel in comparison to $3.25 the prior week and $198 a year ago.
7. Country News
EU: The European barley harvest this year is predicted to be lower than last year’s, but should still be enough to meet requirements, according to Retuers. German analyst FO Licht predicts that the EU’s total barley harvest this year will be some 53 MMT, while the EU’s grain trade association Coceral predicts it will be 55.9 MMT. Regardless, these figures are still down from the 59.6 MMT brought in last year, and will be the smallest barley crop in three years. The EU’s annual barley demand is around 50 MMT.
North Korea: A major drought in North Korea had has forced the government to mobilize its military in an effort to direct dwindling water supplies to its vulnerable crops, reports Reuters. Some areas of the country have not seen rain in over 70 days, which in conjunction with higher-than-average temepratures is causing severe damage to the country’s corn and barley crop.
South Africa: Yellow corn for July delivery in Africa’s largest corn producing country has fallen to $180/MT, which is its lowest level in 16 months, reports Bloomberg News. South Africa is predicted to produce 13.9 MMT of corn this year, which will be the country’s largest crop since the 14.1 MMT harvested in 1981.
9. Ocean Freight Comments
The Baltic Panamax Indices fell farther back all the way back to levels not seen since November 2008. Physical rates in the Atlantic and Pacific went back to the levels of March 2009.
For vessel owners and operators this was not a desirable destination. It was again reported that some Panamax vessels were going out on short-term hire at a near-zero rate and only receiving revenue for fuel. I guess I lost my $1.00 bet last week that we would see the market up this week.
The Capesize market seems to have stabilized. The total market is at a good carry; meaning that vessel operators want $2-$4/MT more for August-September over July. However, the premium, or carry, for forward months erodes once the forward month becomes the current month. The spot market is just a sick dog, but we have to be scraping bottom at these levels even if we don’t move upward much. What is the true market rate for a voyage? Put out a bid to find out.
According to SSY, “the number of Panamaxes waiting to load grain at Brazil’s terminals has dwindled to 25. This is the lowest total since January 2014 and is a sharp contrast with this point last year when 103 Panamaxes were counted waiting to berth at the country’s grain ports. This year’s peak was 89.”
It is also important to note that the International Longshore and Warehouse Union labor contract with U.S. West Coast ports expires on Monday June 30. This could result in significant work stoppages or slowdowns in container handling capacity from the U.S. after this coming Monday. Stay tuned.
The charts below represent January-December 2013 annual totals versus January-May 2014 container shipments for Japan.